March 31, 2010

New Front Opens in Dispute Between ABA, FTC

The American Bar Association and the Federal Trade Commission have been battling for a year over whether regulations designed to prevent identity theft should apply to lawyers. Now, they're tangling again over regulations aimed at mortgage fraud.

At the heart of the disputes is what role, if any, the federal government should have in regulating the legal profession, especially as the government steps up efforts to protect consumers.

In the latest round, the FTC announced a proposed rule in February that would affect for-profit companies that try to prevent home foreclosure by helping consumers renegotiate mortgage loans. The rule, which is laid out across 32 pages of the Federal Register, would bar the collection of advance fees and impose recordkeeping requirements, among other regulations. Click here (PDF) for the full language.

The rule would exempt lawyers in some cases, but the ABA says the exemptions are too narrow. In an 11-page letter to the FTC, Thomas Susman, the ABA’s chief Washington lobbyist, writes that the rule as written could drive lawyers out of the mortgage-modification business and, as a result, harm consumers. The ABA wants a broader exemption for lawyers and their nonlawyer employees.

“With fewer lawyers available to represent consumer debtors, many more of these consumers will be forced to retain nonlawyer, for-profit [mortgage assistance companies] who, unlike licensed attorneys, are not subject to the strict ethical standards, supervision, and disciplinary authority of the state courts,” Susman writes. Click here (PDF) for the letter.

The ABA sent its letter March 29, which was the deadline to submit written comments on the proposed rule.